You’ve probably heard of Vanguard, the world’s largest mutual fund firm, if you’re looking to buy mutual funds. Vanguard has an impressive lineup of high-quality, low-cost mutual funds and exchange-traded funds (ETFs) that are completely free of fees and sales costs (or “loads”).
Vanguard funds can be purchased through third-party brokerage houses such as TD Ameritrade or Charles Schwab, or directly through Vanguard’s website.
Buying Vanguard funds through your brokerage is the simplest choice if you already have an account with a third-party brokerage firm that provides them. Third-party brokerages, on the other hand, may charge fees or impose limits on these purchases. Here’s how to make a decision.
Is there a fee to purchase Vanguard ETFs via Schwab?
The company’s extensive fund selection is one of the reasons Charles Schwab & Co. has been a SMI recommended broker for many years. About 7,500 no-load mutual funds are available through Schwab.
Over 4,200 of them are “NTF” funds, which don’t charge a transaction fee. Any no-load fund that isn’t on Schwab’s NTF list costs $49.95 to purchase.
That was the case until today, at least. For most non-NTF funds, the $49.95 purchase-only transaction cost remains in effect. Retail investors who purchase Vanguard, Dodge & Cox, or investor-class Fidelity funds through Schwab, on the other hand, will pay a higher price: $74.95. This is 50% more than what Schwab charges for other transaction-fee funds traded online. (TD Ameritrade, which is owned by Schwab, has adopted the similar two-tier transaction fee structure.)
They won’t pay to play
The price rise, according to Schwab, is due to the refusal of those three fund families — Vanguard, Dodge & Cox, and Fidelity — to pay the premium that Schwab asks to be on its platform.
“The majority of mutual fund families pay Schwab…for required and vital shareholder servicing fees,” a Schwab spokeswoman told Barron’s. “However, some do not” (paywall). “On retail mutual fund purchases, we are using this alternative amount just for funds for which we do not receive shareholder servicing compensation.”
On this page, Schwab goes into great depth about its multiple compensation structures, but here’s all you need to know about today’s increase:
Most TFFunds pay Schwab an annual asset-based fee, which is normally 0.10 percent of the average fund assets housed at Schwab, but can be as high as 0.25 percent…. In lieu of the asset-based charge, certain TF Funds pay Schwab a specific monetary amount per customer account, often $20 per account yearly….
The transaction charge… helps compensate Schwab for the shareholder services it provides to customers who possess TF Fund shares, together with asset-based or per-position fees collected from the funds.
Despite the fact that more than 130 of Vanguard’s classic funds are available through Schwab, the company “has a long-standing policy of not paying distribution fees that incentivise sales of our funds on third-party platforms,” according to a Vanguard spokeswoman. To put it another way, if investors want to buy Vanguard’s classic funds without paying a fee, they should buy straight from Vanguard.
“Individual individuals can invest directly with us without paying a transaction charge,” a Dodge & Cox spokeswoman said. Barron’s request for comment was ignored by Fidelity.
More to come?
For the time being, Schwab’s transaction fee hike only applies to Vanguard, Dodge & Cox, and Fidelity funds. We’ll have to wait and see if this transaction-fee “surcharge” concept spreads to other Schwab funds, or if it’s just a one-time occurrence. (It’s worth noting that Fidelity has charged a higher cost for buying Vanguard and Schwab funds for numerous years than it has for other transaction-fee funds.)
For several years, retail investors have enjoyed a period of dropping fund fees (of various forms). Let’s hope Schwab’s latest action isn’t the beginning of a trend reversal.
Impact on SMI investors
The impact of this recent pricing change on SMI investors who invest through Schwab (or TDA) should be modest. One reason is that ETF trades are unaffected by Schwab’s new pricing policy. The Schwab/TDA platforms will continue to offer free trading of exchange-traded funds, such as Vanguard and Fidelity ETFs. As a result, you might be able to replace traditional mutual funds with comparable ETFs.
It’s also worth mentioning that, according to Schwab’s pricing guide, the $49.95/74.95 price isn’t imposed in all circumstances. For trades of less than $100, Schwab waives all transaction fees. So, if you put $75 into a transaction-fee fund at Schwab on a monthly basis, you wouldn’t have to pay a transaction fee.
Schwab’s transaction fees are also on a sliding basis. According to the company’s website, “ransaction fees do not exceed 8.5 percent of principal.” For example, a $500 transaction-fee fund purchase would cost $42.50, less than the full $49.95 price levied by most funds or the $74.95 fee charged by Vanguard/Fidelity/Dodge & Cox funds.
Also keep in mind that Schwab offers a variety of classic Schwab-brand funds that can be substituted for Vanguard and Fidelity funds. That implies you might be able to locate a comparable Schwab-managed traditional fund with no transaction fee if you’re considering a Vanguard or Fidelity fund with a transaction fee.
Is it possible to purchase ETFs through Schwab?
Schwab’s ETFs We provide you with access to a wide range of ETFs (exchange-traded funds), ranging from low-cost Schwab ETFsTM for the foundation of your portfolio to a wide range of additional ETF options, giving you an amazing level of choice at a low cost.
Are Schwab ETFs superior to Vanguard ETFs?
When it comes to ETFs, Charles Schwab is far superior. With over 2,000 ETFs across different asset classes and mutual fund firms, Schwab ranks first on our ranking of the best brokers for ETF trading. Vanguard, on the other hand, only has about 1,800 ETFs from about 100 businesses.
Is it possible to purchase Schwab ETFs through Fidelity?
We also went into our Fidelity account to see what Schwab mutual funds were available. We discovered that it does not provide any Schwab funds that are available for free trading. Fidelity charges $49.95 for every Schwab fund.
Is it true that Charles Schwab offers fractional ETFs?
Schwab Stock Slices is a convenient way to purchase fractional shares for a fixed price. You can acquire shares in up to 30 top American firms in a single transaction.
What is the total number of Schwab ETFs?
Overview of the Charles Schwab ETF Charles Schwab ETFs manage $268.31 billion in assets under management across 27 ETFs trading on US exchanges.
What makes Charles Schwab superior to Vanguard?
The truth is that, depending on one’s needs, any broker is ideal for a long-term investor. Vanguard has greater access to foreign stocks, while Charles Schwab provides additional options for active investors. In the end, the best brokerage is determined by how you invest.
Is Charles Schwab the same as Vanguard?
In terms of trading platforms, Vanguard and Charles Schwab have a lot in common. Both are full-service brokerages, which means that investors can trade in most common securities and have access to most common types of data. Vanguard and Charles Schwab both provide a comprehensive set of information and technical indicators for investors, ranging from fundamental data like price history to more sophisticated data like company profiles and real-time updates.
However, there are numerous areas where Charles Schwab outperforms Vanguard in terms of services and features.
Schwab allows skilled investors to trade futures contracts as well as foreign currency markets. Neither of these assets are supported by Vanguard. This is not a loss for the normal investor, as these high-risk investments are unlikely to be traded. It may, however, have an influence on more experienced investors who have the skills and financial resources to securely trade in these markets.
Vanguard’s prices tend to favor large investors more aggressively than regular investors. Fees on mutual funds and options contracts are waived for investors who have $1 million or more in the company’s products. Vanguard’s pricing aren’t too high to begin with, so this isn’t necessarily a concern for average investors. (In fact, the only significant difference is that Vanguard charges a few cents more per option contract than Schwab.) The finest discounts on Vanguard’s marketplace, however, are still reserved for the wealthiest traders.
Neither site enabled direct bitcoin investing at the time of writing, and both platforms support fractional share trading, contrary to some reports.
Finally, Schwab provides two branded trading platforms. Most investors will use the firm’s basic platform, which is accessible via a website and an app “The “Charles Schwab” name is more than adequate. The company’s second platform, dubbed “For sophisticated investors, “StreetSmart” provides a more complex trading environment. StreetSmart provides various features for high-volume, semi-professional traders that neither Schwab’s base brand nor Vanguard can match, such as the capacity to react to real-time market fluctuations.
This brand will provide minimal value to normal investors, and it will be prohibitively difficult for them to understand. However, for the more seasoned investor, StreetSmart has a lot to offer.
Finally, Schwab provides a much broader number of order types than Vanguard. Complex interactions, such as conditional orders and triggers, are supported by Schwab’s platform. Vanguard’s platform has a far smaller number of complicated order types, but it does include all of the essentials, such as stop-loss and limit orders.
Are Schwab ETFs a smart investment?
If inflation continues to grow until 2022, investors are likely to flock to Treasury Inflation-Protected Securities (TIPS) (TIPS). Based on America’s consumer price index, these bonds automatically increase with inflation and fall with deflation. (In other words, if prices rise, TIPS rise as well.)
TIPS, according to State Street Global Advisors, will provide defense in the following year.
According to SSGA’s strategists, “barbelling credit with TIPS might add another genuine income stream, this time on the defensive side of a bond portfolio.” “TIPS have a low credit risk because they are backed by the US government’s full faith and credit. Adding TIPS to a portfolio can also help offset some of the equity risk brought on by credit overstretch.”
The Bloomberg US Treasury Inflation-Linked Bond Index is tracked by the Schwab US TIPS ETF (SCHP, $62.76). It’s a small portfolio of less than 50 TIPS with a 7.7-year effective duration.
TIPS may perform better during inflationary periods, but they still entail interest-rate risk, so prospective investors should bear that in mind. If the Fed raises rates, the market value of the underlying securities may fall, putting pressure on a fund like SCHP.
As a result, the Schwab U.S. TIPS ETF is a smart alternative for investors looking to diversify their bond portfolio while also complementing a core bond holding that may underperform in an inflationary climate.